Tax Hikes Roiling Hawaii Make Abercrombie Least Popular Governor

Hawaii Governor Neil Abercrombie, who can bench press 225 pounds at age 73, likes the camaraderie of the gym.

“When you’re in the weight room, everyone’s helping everyone else,” Abercrombie said in an interview. “Everybody’s there with a lot of goodwill, they encourage one another.”

Abercrombie isn’t getting a lot of love elsewhere in Hawaii these days. Elected just over a year ago with 58 percent of the vote, he’s now the least-popular governor in the nation, with a 30 percent approval rating, according to an October survey by Raleigh, North Carolina-based Public Policy Polling. That same month, four of his senior advisers quit.

The governor attributes the friction to the budget he signed in June, which involved tax hikes and spending cuts, including a 5 percent salary reduction for state workers. He spoke in a Dec. 6 interview at a Democratic Governors Association meeting in Los Angeles.

“I told everyone when I ran, I’m going to tell you exactly what needs to be done,” said Abercrombie, who previously served on the Honolulu City Council, in the state Senate and in Congress. “I’ve been elected for four decades now, always on the basis that not everyone agrees with me.”

Abercrombie took office last December with the state facing a $1.26 billion deficit for the two-year budgeting cycle that ends June 2013. To help fill the gap, he proposed a 10-cent per can tax on sugary beverages such as soda, a 50 percent boost in alcohol levies and taxes on the pensions of people making more than $100,000 a year.

Highest Income Tax

Hawaii tied with Oregon for the highest individual income tax rate at 11 percent as of last Jan. 1, according to the Washington-based Tax Foundation.

Restaurant owners, soda distributors and retiree groups rallied to oppose the measures and the Democrat-controlled Legislature caved in to the pressure, according to Sam Slom of Honolulu, the lone Republican in the state Senate.

“This broke out into real hostility,” Slom said in a telephone interview. “This has not happened before. Businesses were not well organized. They were not very effective.”

The Legislature did suspend $180 million a year in tax exemptions for certain industries, such as businesses that sell to military commissaries, according to Kalbert Young, Hawaii’s budget director. Those who rent cars, mainly tourists, now have to pay $6 more per day, worth $60 million. State employees will pay 50 percent of their health insurance premiums, up from 40 percent.

Additional public-worker pay reductions will save the state as much as a $100 million a year, Abercrombie said.

Subsidies Eliminated

The governor campaigned to eliminate subsidies given to 30,000 former state workers and their spouses to cover Medicare Part B payments, a benefit that generates $139 a month for Abercrombie himself. The Legislature eliminated the subsidies only for future hires, which the governor considers a partial victory.

“I wanted to put together proposals that let everyone know how serious our deficit situation was,” Abercrombie said. “We have unfunded liabilities in pensions and health care that are simply not sustainable with our tiny population and tiny tax base. We can’t continue to do this and survive.”

Hawaii ranks 40th in population, with 1.36 million residents.

The state’s Employees’ Retirement System had an unfunded liability of $7.1 billion or 61 percent of its assets as of June, 2010, according to an actuarial valuation. The governor, who is paid $117,312 a year, collects state and federal pensions from his previous jobs, according to his spokeswoman, Donalyn Dela Cruz, without providing specifics.

‘Aggressive Solutions’

Standard & Poor’s analyst Gabriel Petek cited Abercrombie’s “willingness to implement aggressive solutions” in affirming the state’s AA rating, the company’s third-highest, in a Nov. 8 report.

Many Hawaiian business owners, however, feel the governor acts too independently, according to Signe Godfrey, president of Olsten Staffing Services in Honolulu.

“He gives us an unstable feeling he may turn on us,” Godfrey said in a telephone interview. “We don’t know what he’s going to do.”

Marissa Capelouto, owner of Kapolei-based Oahu Express Ltd., said she lobbied against increased levies on shipping containers.

“I let go three drivers, I’m not buying any equipment,” the freight-forwarding executive said. “They’re creating all kinds of taxes just so they can feed their unions.”

Visitor Increase

Visitor spending in Hawaii rose 15.6 percent to $1.1 billion in October, the 10th consecutive month of revenue increases, according to the state’s Tourism Authority. The number of arrivals was up 2.6 percent to more than 6 million in the first 10 months of 2011.

Prices on Hawaiian publicly-traded companies have gained 6.8 percent this year through Dec. 16, while the Standard & Poor’s 500 equity index (SPX) fell 3 percent for the period, according to the Bloomberg Economic Evaluation of States index. The state’s unemployment rate was 6.5 percent in October, compared with a national average of 9 percent.

“Generally things have been on a little more positive trajectory,” said Stephen Rodgers, chief investment officer of Bank of Hawaii Corp. (BOH), which oversees $1.4 billion of municipal bond investments.

Bond Sale

After a 22-month lull, Hawaii sold $1.29 billion in debt last month, its largest offering ever and at its lowest interest rate. The $800 million portion that is general-obligation debt will cost the state 3.65 percent annually. Bonds sold to refinance existing debt will cut present-value borrowing costs by $59 million, the governor said in a statement.

A general-obligation bond sold last month that matures in December 2031 traded Dec. 16 at an average yield of 3.51 percent, about 13 basis points above that of an index of top- rated municipal bonds due in 20 years, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

Abercrombie appointed Blake Oshiro of Honolulu, the state House of Representatives’ majority leader, to be his deputy chief of staff in November, a move intended to improve relations with the Legislature, according to Gene Ward, a Republican state representative, also from Honolulu.

“There’s going to be a charm offense, to make up for what he lost,” Ward said in a telephone interview.

The governor offered no apologies, however.

“They’ll forgive you being wrong,” he said. “They’ll never forgive you for being right.”

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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